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Guest Charlie The Tramp

Optimistic Outlook Won’t Ward Off Danger

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Guest Charlie The Tramp

When a Credit Crunch strikes like a Virus, it infects very quickly.

The credit squeeze is hitting not only the banks, but their corporate clients too, as Mitchells & Butlers has discovered. The pubs group has shelved plans to sell part of its estate to a joint venture with Robert Tchenguiz and return £1 billion or more of the proceeds to shareholders. The reason is the sudden souring of investor appetite for leveraged debt.

The difference between this deal and others is that it is the client, and not its banks, that has been left nursing wounds. M&B’s two lead banks, Royal Bank of Scotland and Citigroup, walk away unscathed. Despite 2½ months of negotiations, they had not committed themselves. By contrast M&B made the mistake of anticipating a deal by hedging against a particular risk. It is lumbered with a huge swaps hedge, valued in the books at minus £60 million.

Optimistic outlook won’t ward off danger. The Times August 3

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